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Investment Ideas

One of the few bright spots of the tepid economic recovery is the recent return to job growth. It kicked off in January with a marginal but psychologically important 14,000 gain, followed by 39,000 in February, a solid 230,000 in March and the most recent 290,000 from April.

Yes, some of those recent jobs can be traced back to temporary government demand related to the census, but even when you strip out that component, the private sector is once again adding to its rank. This month, analysts are looking for 500,000 jobs, a big number by any standard, and a nice build on the current trend.

As one might suspect, we have also seen a significant drop in initial jobless claims, with the 4-week average recently coming in at 459,000 against 616,000 in the same period last year.

Productivity is Maxed Out

So clearly, we have reached an inflection point where many companies have squeezed as much productivity out of each individual employee as possible and need to increase the head count in order to boost the top line.

No doubt these new jobs should have a positive impact on consumer spending as the extra Dollars trickle down the supply chain, but peel back another layer and it looks like another segment of the market could benefit as well; staffing agencies.

Early Stages of a Growth Cycle

Staffing agencies were a pretty hot investment before the big financial implosion of 2008 and 2009 threw a big bucket of water on the party. Their success was driven by a new model, leveraging advanced communication technologies and personalized relationships to place a growing number of candidates into employee-hungry companies.

High-Margin Business

These companies absorbing waves of demand behind sustained job growth and better communication tools were scoring fat commission checks in the process, frequently in the range of 25% to 30% of a new hires first-year gross. Recruiting is a high-margin business, and when business is good, the top companies suck up Dollar bills like vacuum cleaners.

We haven't seen big earnings out of the sector yet, but if the economy stays on course and continues to create jobs, the group could be on the cusp of a multi-year earnings growth cycle. Which means it could be a good time to race ahead of the masses and pick up some unloved staffing agency stocks.

Here are three of the higher ranking Zacks staffing agency stocks that look well positioned to benefit from sustained job growth.

3 Staffing Agency Stocks

Robert Half International, Inc. (RHI - Analyst Report) is not only the largest of the group with a $3.8 billion market cap, it's also the most international, with operations in over 60 countries around the world. Even though the last year has been a tough jobs environment, the company has been handily beating expectations with an average earnings surprise of 37%. On Robert Half's Q2 earnings call from April 27, CEO Harold Messmer said that, "We are beginning to see improvement in the demand for our professional staffing services as a result of better economic conditions in North America and abroad." The valuation picture is a bit dicey, but the trend is clearly in play, take a look below.

RHI: Robert Half International, Inc. >
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Manpower, Inc. (MAN - Analyst Report) is another big-name in the staffing industry game, with a market cap of $3.57 billion and an solid international footprint. The company's recent Q1 results from late April saw it return to profitability, producing earnings of 4 cents against last year's loss of 2. Once again, the valuation picture is a bit richer, but the next-year estimate is crazy bullish, calling for 108% earnings growth. Oh ya, Manpower has an average earnings surprise of 141% over the last year. Take a look at the chart below.

MAN: Manpower, Inc. >
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Kforce, Inc. (KFRC - Snapshot Report) is the baby of the group with a $625 million market cap. It's also somewhat of a specialty player, working heavily with the government, which could work in its favor on continued expansion. Once again, this Zacks #2 rank stock has four earnings surprises over the last year averaging 37%. The next-year estimate is projecting 55% earnings growth, take a look below.

KFRC: Kforce, Inc. >
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Stay Ahead of the Curve

You may not hear a lot of people beating the staffing agency drum right now, but that may be a good thing. Getting in before the masses sniff out the next great investment idea usually leads to outsized gains.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service..

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